Socialist President Francois Hollande called on employers and unions to strike a deal by the end of 2012 that would grant companies more flexibility in hiring and firing while giving more job security to workers on short-term contracts.

Talks between the Medef employers' union and main labour groups spilled over to January after the last round broke up on Dec. 21 without a deal, with each side accusing the other of making unacceptable demands.

As talks resume this week, Medef chief Laurence Parisot said employers would be unable to sign a deal imposing higher costs for hiring on seasonal or short-term contracts.

"At this point in our discussions, including talks we had all day yesterday, on Sunday... the Medef will not sign the deal," Parisot said on Radio Classique. "The issue of taxation for short contracts is a vital question."

The government says it will impose its own deal if the two sides fail to agree. But legislating without support from unions and employers could expose it to criticism. Unions may influence left-wing parliamentarians to water down the agreement.

Absolutely disastrous

The government is pushing for a deal to address concerns that France has a two-speed labour market, with those on long-term job contracts enjoying too much job security and those on short-term contracts too little.

It has also granted French companies 20 billion euros in tax credits to offset high social security charges for labour, which is often cited by economists as a brake on growth and an important factor in maintaining chronically high unemployment.

Unit labour costs in Germany crept up two per cent in 1999-2010, while in France they leapt by more than 20 per cent, OECD figures show. Productivity gains were pumped back into wage increases to fuel domestic demand.

French unemployment is at a 13-year high while across the Rhine joblessness is at 6.9 per cent, below the euro zone average.

Parisot said that heavier levies on short-term contracts, which are mainly used in tourism and restaurants, would make employers less — not more — likely to hire, while undermining broader efforts to ease wage pressures.

"It would be absolutely disastrous... to fail because of this purely symbolic issue," she said.

Parisot, accusing Hollande's Socialist government of indirectly interfering in the talks to employers' disadvantage, added that they would not extend negotiations beyond this week.

Flexibility

Employers want an agreement that will allow companies to adjust their wage burden more nimbly in a downturn, as well as simplifying the rules about firing workers to make the process more predictable and keep costs in check.

Two major unions reject measures to add flexibility. All five unions at the talks want greater job security for workers on flimsy contracts, calling for employers who use them to be penalized by paying higher taxes or more welfare contributions.

Unions reject greater flexibility in work contracts and demand more security for short-term workers. They want employers using short-term contracts to pay more tax or higher contributions to a fund that pays out unemployment benefits.

"At the moment we have to be pessimistic," Stephane Lardy, negotiator for the hardline Force Ouvriere union, told Reuters. "It's obvious that the last draft the employers offered us is very, very far from an agreement."

Labour Minister Michel Sapin said the government would present a draft law regardless of the talks' outcome. However, he expressed faith in a deal being reached by Jan. 11, when talks are due to conclude.